MAS Strengthens Capital Requirements for Singapore-incorporated Banks

       

Singapore, 28 June 2011 … The Monetary Authority of Singapore (“MAS”) announced that Singapore-incorporated banks will meet capital adequacy requirements that are higher than the Basel III global capital standards1.  Singapore-incorporated banks are well-capitalised and in a strong position to meet MAS’ revised requirements.     

2   MAS will require Singapore-incorporated banks to meet a minimum Common Equity Tier 1 (“CET1”) capital adequacy ratio (“CAR”) of 6.5%, Tier 1 CAR of 8% and Total CAR of 10% from 1 January 2015. These standards are higher than the Basel III minimum requirements of 4.5%, 6% and 8% for CET1 CAR, Tier 1 CAR and Total CAR, respectively.

3   In addition, MAS will require Singapore-incorporated banks to meet the Basel III minimum capital adequacy requirements from 1 January 2013, two years ahead of the Basel Committee on Banking Supervision’s 2015 timeline.  This means that from 1 January 2013, Singapore-incorporated banks will meet a minimum CET1 CAR of 4.5% and Tier 1 CAR of 6%.  MAS’ existing requirement for Total CAR will remain unchanged at 10%.

4   In line with Basel III requirements, MAS will introduce a capital conservation buffer of 2.5% above the minimum capital adequacy requirement.  This will be met fully with CET1 capital and phased in on 1 January each year, from 2016 to 2019.  Including the capital conservation buffer, Singapore-incorporated banks will be required to meet a CET1 CAR of 9%, which is higher than the Basel III requirement of 7%.  MAS’ revised capital adequacy requirements and their transition timeframe are summarised in the Annex2.

5   Capital requirements on Singapore-incorporated banks need to be set higher than the Basel III minimum requirements because each of the Singapore-incorporated banks is systemically-important in Singapore and has a substantial retail presence.   While they remained strong throughout the global financial crisis, the higher capital requirements will further strengthen their ability to operate under stress conditions and will help protect depositors, reduce risks to the economy, as well as safeguard financial stability.  

6   Announcing the changes at the Annual Dinner of the Association of Banks in Singapore, MAS Deputy Chairman, Mr Lim Hng Kiang said that MAS “must maintain the high standards of financial regulation which have become associated with Singapore.  Maintaining high regulatory standards is completely compatible with fostering a vibrant financial sector.”

7   The Basel III capital standards also seek to improve the consistency, transparency and quality of the capital base and strengthen the risk coverage of bank capital rules.  MAS plans to adopt these standards and will consult on the text of its rules later this year.

1   Basel III sets out the global standards on bank capital adequacy established by the Basel Committee on Banking Supervision.
2   The requirements will apply to every bank incorporated in Singapore with a Full Bank licence, and its locally-incorporated bank subsidiaries.  The requirements will apply at both bank-group and bank-solo levels.

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Annex

MAS’ Revised Capital Adequacy Requirements and Transitional Arrangements

Table 1 summarises the Basel III capital adequacy requirements and MAS’ revised requirements for Singapore-incorporated banks, when fully implemented. Chart 1 compares MAS’ CET1 requirements with the corresponding Basel III capital standards.

Table 1: Minimum Capital Adequacy Requirements and Capital Conservation Buffer (%)(1)

Basel III

CET1 CAR

Tier 1 CAR

Total CAR

Minimum requirement

4.5

6

8

Capital conservation buffer(2)

2.5

Minimum requirement plus capital conservation buffer

7.0

8.5

10.5

MAS

CET1 CAR

Tier 1 CAR

Total CAR

Current requirement(3)

-

6.0

10.0

New minimum requirement(4)

6.5

8.0

10.0

Capital conservation buffer(2)

2.5

Minimum requirement plus capital conservation buffer

9.0

10.5

12.5

Notes:

(1) All numbers are expressed as a percentage of the bank’s risk-weighted assets.
(2) Under Basel III, a capital conservation buffer of 2.5% comprised of CET1 capital, is established above the minimum capital adequacy requirement. Capital distribution constraints will be imposed on a bank when its capital level falls within this range.  
(3) There is no explicit minimum CET1 requirement under Basel II.
(4) The minimum capital adequacy requirements must be met at all times, even during periods of stress.

Chart 1: Comparison of MAS’ CET1 Requirements with Basel III

2   The revised requirements will be phased in according to the timelines in Table 2.  The minimum CET1 CAR and Tier 1 CAR will be phased in between 1 January 2013 and 1 January 2015 as follows:

  • On 1 January 2013, banks will be required to meet the 4.5% CET1 CAR and 6% Tier 1 CAR. 
  • On 1 January 2014, banks will be required to meet the 5.5% CET1 CAR and 7% Tier 1 CAR. 
  • On 1 January 2015, banks will be required to meet the 6.5% CET1 CAR and 8% Tier 1 CAR.

3   In line with the timeline under Basel III, the capital conservation buffer will be phased in between 1 January 2016 and 1 January 2019 in equal increments.  It will begin at 0.625% on 1 January 2016 and increase each subsequent year by an additional 0.625 percentage points, to reach its final level of 2.5% on 1 January 2019.

Table 2: Transitional Arrangements

(All dates are as of 1 January) 

2013

2014

2015

2016

2017

2018

2019

Minimum CET1 CAR

4.5%

5.5%

6.5%

6.5%

6.5%

6.5%

6.5%

Capital Conservation Buffer

0.625%

1.25%

1.875%

2.5%

Minimum CET1 CAR plus Capital Conservation Buffer

4.5%

5.5%

6.5%

7.125%

7.75%

8.375%

9.0%

Minimum Tier 1 CAR

6.0%

7.0%

8.0%

8.0%

8.0%

8.0%

8.0%

Minimum Total CAR

10.0%

10.0%

10.0%

10.0%

10.0%

10.0%

10.0%

Minimum Total CAR plus Capital Conservation Buffer

10.0%

10.0%

10.0%

10.625%

11.25%

11.875%

12.5%

***

Note to editor:

MAS’ capital adequacy requirements for Singapore-incorporated banks are based on the capital adequacy framework established by the Basel Committee on Banking Supervision (“Basel Committee”).   

2   Basel III3 specifies a minimum Total capital adequacy ratio (“CAR”) of 8% and a minimum Tier 1 CAR of 6%, and introduces a new minimum Common Equity Tier 1 (“CET1”) CAR of 4.5%4.  To promote the conservation of capital and the build-up of adequate buffers above the minimum requirement that can be drawn down in periods of stress, Basel III also establishes a capital conservation buffer of 2.5%, comprised of CET1 capital. In addition, a countercyclical capital buffer within a range of 0% to 2.5%, comprised of CET1 capital, may be implemented according to national circumstances to address a build-up of system-wide risk associated with excessive aggregate credit growth5.

3   The Basel III framework prescribes how the numerator and the denominator of the capital adequacy ratios should be measured:   

  • The numerator of the ratio (i.e. regulatory capital instruments) represents the amount of capital a bank has available to buffer losses.  Regulatory capital comprises CET1 capital, Additional Tier 1 capital and Tier 2 capital. Tier 1 capital comprises CET1 capital and Additional Tier 1 capital; Total capital comprises Tier 1 capital and Tier 2 capital.
  • The denominator of the ratio (i.e. risk weighted assets) is calculated by weighting different categories of assets and off-balance sheet exposures of a bank according to their relative riskiness. 

3 “Basel III: A global regulatory framework for more resilient banks and banking systems”, December 2010 (revised June 2011), is part of the Basel Committee's continuous effort to enhance the banking regulatory framework.  It builds on “Basel II: International Convergence of Capital Measurement and Capital Standards – Comprehensive Version”, June 2006.
4 Basel II specified a minimum Total CAR of 8% and an implicit minimum Tier 1 CAR of 4%.
5 Under Basel III, national authorities should have in place a countercyclical capital framework by 1 January 2016.  National authorities will have discretion to make decisions on the triggers to and size of the countercyclical capital buffer.  MAS will be developing a countercyclical capital framework, in accordance with the Basel Committee’s guidance on its design. 

Last Modified on 26/11/2016